Which party takes the risk of loss that exceeds the traders initial stake?

For example. Say a trader puts up 5K at a prop shop. Trader is given 5:1 leverage, and with that 25K, proceeds to lose to 7K.

Who takes that extra 2K loss?
Trader or Prop firm?

Seems in some cases the Trader bears the risk of loss over and above his initial capital contribution. Whereas, in other setups, the Prop will take the loss.

More...

In most (99.99%) of the cases, you will not be able to lose more than your contribution due to risk management of the prop. They monitor your activity, and if you approach a certain level wefore you blow out your deposit, you will be required to add more funds if you want to trade. Your positions will be liquidated by the firm. You will not be given the opportunity to lose more than you put in.

Which party takes the risk of loss that exceeds the traders initial stake?

For example. Say a trader puts up 5K at a prop shop. Trader is given 5:1 leverage, and with that 25K, proceeds to lose to 7K.

Who takes that extra 2K loss?
Trader or Prop firm?

Seems in some cases the Trader bears the risk of loss over and above his initial capital contribution. Whereas, in other setups, the Prop will take the loss.

More...

you would have to be a terrible trader to lose 7K using 25K in buying power on one trade.

if you keep losing on individual trades, they will normally cut off your account once your losses equal your cap contribution.

but if somehow you instantly lost like 50% on a single trade and blew out your account and then some, the prop company normally will eat it and show you straight to the door or ask for more money (including the excess losses). if the losses are huge, i guess they could sue you but normally it isnt worth their time and legal costs.